No easy savings in cutting waste in state social services

Written By BY Elizabeth Powers Posted: 04/20/2014, 11:22am

The idea that many beneficiaries of human service programs in Illinois (such as Medicaid, food stamps and child care subsidies) are undeserving or cheating the system is a popular one with both the public and policymakers. But there is less evidence of “waste, fraud and abuse” than you might imagine.

For instance, the savings from an ongoing complete scrubbing of the state’s Medicaid rolls is falling well short of the hoped-for amount. The contractor has been recommending that nearly half of current cases be canceled. If all these cases were ultimately approved for cancellation, never come back into Medicaid, and had average associated Medicaid costs, the savings from this process would be enormous. In fact, none of these conditions appears to hold. A closer look at the recommended cases revealed that about one-third were correctly in Medicaid, so they were not dis-enrolled. As many as 20 percent of those canceled because of the scrub again became eligible for Medicaid and legitimately re-enrolled in short order. And many of those who were canceled had in effect already dis-enrolled themselves, having zero Medicaid claims on their case for at least 6 months prior.

In the end, the state is on target for a one-time savings of about $50 million from this effort. While $50 million is nothing to sneeze at, at just 40 percent of the hoped-for savings, policymakers clearly need new ideas.

Extending the approach of scrutinizing enrollees to programs outside of Medicaid is even less promising. The fact is, most benefits that human service programs pay out to individuals are pretty small in the overall scheme of things. Big money from cheating the system is mostly available to entities that can pool benefits, not to individual recipients. For example, for Medicaid, aggregators are service providers, and for food stamps, they are stores. The big money simply doesn’t reside with an individual recipient.

Illinois also has particular problems that lead to waste, fraud, and abuse in human services. A real reform of government contracting is sorely needed in this state. Many contracts are still not competitively and openly bid, let alone with performance metrics that would instill accountability. A good example is Gov. Pat Quinn’s recently shuttered anti-violence program, which cost taxpayers $55 million and was hastily and poorly designed. This dismal situation has led not only to waste, but to many documented cases of outright graft. Although it is now 2014, Illinois government continues to struggle with outmoded data systems. Being able to share more information instantaneously between programs would allow more accurate checks of eligibility in the first place as well as being a prerequisite for the development of cost-effective, real-time fraud detection in programs.

To be sure, the state’s programs should be run with integrity and that means eliminating waste, fraud, and abuse. But the potential savings from this line of attack — the wholesale scrutiny of all program recipients — has clearly been exaggerated, as the Medicaid situation plainly shows. Improving programs through both better contracting principles and modern information management has multiple advantages, including cutting out waste, fraud, and abuse, benefitting recipients through better service, lowering administrative costs, and assuring the public that in an era of scarce dollars for human services, their resources are being stewarded responsibly.

Elizabeth Powers is an associate professor of economics and a faculty member in the Institute of Government and Public Affairs at the University of Illinois at Urbana Champaign. This commentary is part of the Illinois Budget Policy Toolbox. Learn more at igpa.uillinois.edu/budget-toolbox.